World Economic Forum’s Financial Development Index

“Malaysia (17th) rises an impressive five spots this year, bolstered by significant increases in its scores within financial stability (3rd) and non-banking financial services (18th). Malaysia’s top standing in currency stability, accompanied by a fairly stable banking system, serves as the foundation of a stable financial system (3rd). Malaysia’s strength as an Islamic banking center remains evident in its continued 12th-place ranking in the banking pillar; a notable level of financial disclosure is a key contributor to its standing here. Less-developed derivatives and foreign exchange markets are potential areas of improvement for Malaysia’s financial markets (25th), although the country’s well-developed equity and bond markets (15th and 16th) are a source of strength. An evaluation of financial access in the country presents a divergent picture at the subpillar level, where robust commercial access to capital (9th) stands in contrast to more limited retail access (25th).”

In one of the pillars — FINANCIAL SERVICES

These are the facts about the Malaysia’s financial services standing.

Malaysia is ranked 3rd ahead of Singapore which is in 4th position. (Saudi Arabia 1st and Hong Kong 2nd)

In Banking Financial Services Malaysia ranks 12 and Singapore 13.

US and United Kingdom Lead Financial Development Index Despite Weaknesses; Risks in Emerging Markets Highlighted

The US and United Kingdom manage to hold top spots ahead of Asian financial centres Hong Kong and Singapore

Developing countries continue to show financial stability, but other risks could jeopardize economic growth

Report analyses 57 financial systems and capital markets around the world

The report, rankings (PDF and excel) and country highlights can be downloaded at:

The Financial Development Report

Financial Development Report 2010

New York, USA, 4 November 2010 – The United States and the United Kingdom managed to take the top spots despite stagnant or weakening scores in the World Economic Forum’s third annual Financial Development Report released today. Weak scores in financial stability for both countries appeared to impact the United Kingdom more with an appreciable decline in its overall score and a drop from the top spot in last year’s rankings. Their rankings were supported by greater relative declines in other countries’ scores.

The scores for Asian financial centres Hong Kong and Singapore advanced to close their distance from the two leaders: both improved slightly, earning them 3rd and 4th place respectively. They had high marks for their robust institutional and business environments and a high degree of financial system stability.

Australia dropped to 5th place, pulled down by declining non-banking financial services activity (such as IPOs and M&As) and a less favourable business environment. Canada maintained 6th place in the rankings. There was some movement of the smaller European economies as the Netherlands and Switzerland switched places from last year to come in at 7th and 8th respectively and Belgium supplanted Denmark at 10th. Japan maintained 9th place based on solid performance across its financial intermediaries and markets.

“While the US and United Kingdom top the rankings due to their deep and active wholesale markets, several ominous signs point to their leadership being in jeopardy. Aside from very low scores in financial stability, both showed weakness in their business environments, in particular their tax regimes, as well as the efficiency of their banks,” said Kevin Steinberg, Chief Operating Officer of the World Economic Forum USA.

As last year, emerging market economies performed well in the financial stability portion of the Index. Malaysia, Chile, Brazil, the Slovak Republic, Mexico, Morocco, China and Peru all scored in the top 20 of the financial stability pillar. However, within the context of today’s economic climate, there are other risks posed by the performance of financial systems in these markets. Based on IMF forecasts, a full 54% of absolute global GDP growth (or US$ 7.7 trillion) can be expected to come from emerging markets. Thus, continued global economic recovery will rely disproportionately on them – and their financial systems – to support this growth. By contrast to their economic importance, emerging markets’ performance in the Financial Development Index is not as robust. On average, emerging markets scored 1.3 points lower in the Index, raising the key issue of how GDP growth will be effectively financed.

“It is important to take an expanded view of risk when assessing the financial systems in emerging markets. While stable, the financial systems in many of these economies will need to improve performance in areas such as local bond market development and the provision of financial services to consumers if they aren’t to jeopardize economic growth,” said James Bilodeau, Head of Emerging Markets Finance at the World Economic Forum and editor of the report.

Continued growth will require the significant yet prudent expansion of credit to all sectors of these economies. Deep local bond markets can be an important source of credit beyond the limited lending capabilities of banks and contribute to a country’s “defence” against volatile flows of capital into and out of the country.

The development of infrastructure is also vital to support continued economic growth in these markets, but may be hindered by the inability to obtain long-term financing in the capital markets within some countries.

Many emerging market economies that demonstrated solid performance in the provision of financial access to corporations did not score nearly as well in terms of the provision of retail financial services to individuals. This lack of retail access could limit the ability to stimulate consumer demand needed to drive global economic growth and offset ongoing economic imbalances.

By addressing these longer-term yet important risks, countries can continue to promote the development of their financial systems as key enablers of local and global growth.

About the Financial Development Index

The Financial Development Report ranks 57 of the world’s leading financial systems and capital markets. It analyses the drivers of financial system development in advanced and emerging economies to serve as a tool for countries to benchmark themselves and establish priorities for reform.

The rankings are based on over 120 variables spanning institutional and business environments, financial stability, and size and depth of capital markets, among other factors. The breadth of factors covered in the report means that countries with high financial instability scores like the United Kingdom and US could still achieve a high relative ranking in the Index due to other strengths.

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Naturally, the confidence level is good and encouraging. The economy should be bullish about this perception standing.